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of <h1>Trust deemed discretionary, invalid advance income distribution. Ruling under Income-tax Act, 1961. Revenue wins.</h1> The Tribunal determined that the trust in question was discretionary rather than specific, as the trustees had absolute discretion in distributing income ... Previous Year Issues Involved:1. Nature of the trust: Discretionary or specific.2. Determination of beneficiaries and their shares.3. Validity of trustees' resolution to distribute income.4. Applicability of section 161 versus section 164 of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Nature of the Trust: Discretionary or SpecificThe primary issue was whether the trust was discretionary or specific. The trust was created by a will executed by Late Smt. Shantaben Premchand Nayak, which left the trustees with absolute discretion to distribute the income and corpus of the trust among the beneficiaries. The Tribunal noted that the trust deed itself did not specify the beneficiaries or their shares, making it a discretionary trust. The trustees had the discretion to determine who among the class of beneficiaries would receive the income and in what proportion.2. Determination of Beneficiaries and Their SharesThe trust deed specified that the trustees had to distribute the income among the children of Kiritbhai who were alive at the time of distribution. The trustees passed a resolution on 9-11-1977 to distribute the income for the Samvat year 2034 among the beneficiaries, specifying their shares. However, this resolution was deemed to be an advance declaration of intention rather than an actual distribution. The Tribunal emphasized that the determination of beneficiaries and their shares had to be made at the time of distribution, not in advance. The list of beneficiaries could change due to births or deaths, and the trustees had to consider the beneficiaries alive on the actual date of distribution.3. Validity of Trustees' Resolution to Distribute IncomeThe resolution passed by the trustees on 9-11-1977 was scrutinized for its validity. The Tribunal held that the resolution did not comply with the trust deed's requirement to determine beneficiaries and their shares at the time of distribution. The resolution was considered an advance declaration and not an actual distribution. The Tribunal stated that the trustees must consider the list of beneficiaries as it existed on the date of distribution, not in advance. Therefore, the resolution was not legally effective in altering the discretionary nature of the trust.4. Applicability of Section 161 versus Section 164 of the Income-tax Act, 1961The assessee-trust argued that the trust should be assessed under section 161, claiming that the beneficiaries and their shares were determinate for the assessment year 1979-80. However, the Tribunal disagreed, stating that the trust deed made the trust a discretionary one, and the trustees' resolution did not change this nature. The Tribunal referred to section 164(1) of the Income-tax Act, which applies to discretionary trusts where the beneficiaries and their shares are indeterminate. The Tribunal concluded that the trust should be assessed under section 164, as the income was not specifically receivable on behalf of any one person, and the individual shares of the beneficiaries were indeterminate at the time of receiving the income.ConclusionThe Tribunal reversed the order of the AAC and restored the order of the ITO, holding that the trust was a discretionary trust and should be assessed under section 164 of the Income-tax Act, 1961. The appeal by the revenue was allowed, and the trustees' resolution to distribute income in advance was deemed ineffective in changing the discretionary nature of the trust.
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